If EU does not face and solve the challenges posed by the euro, it will break down.

Sir, you write, “Joining the euro meant losing the ability to depreciate its currency — long Italy’s safety valve when its competitiveness failed to keep pace with its neighbours.” “Italy needs real economic plans, not empty slogans” September 6.

On the eve of the euro in an Op-Ed I wrote, “Exchange rates, while not perfect, are escape valves. By eliminating this valve, European countries must make their economic adjustments in real terms. This makes these adjustments much more explosive.”

And that EU authorities must have known was the main challenge the euro posed. And of course it is not only about Italy. Without the euro the Deutsche Mark would have revalued and Germany would not have its current trade surplus.

But what have the European authorities done to face up to that challenge? Basically nothing, just empty slogans. Instead EC have even dared to keep busy with helping to solve cases like persuading church authorities to establish non-discriminatory entry fees for the monasteries... that's acting like a Banana Union.

But, as if that was not enough they also went and risk weighted the capital requirements for banks for all EU sovereigns at 0%, which means that market interest signals on sovereign debt have been artificially lowered, and so that EU banks can easier finance any disequilibria... and that even though all Eurozone sovereigns denominated their debt in a currency that is not really their domestic (printable) one.

Sir, irresponsible EU authorities are dooming that beautiful dream of the European Union, to turn into a real nightmare… and I am truly surprised by how little that fact has played out in all the discussions on Brexit.

PS. Though Greece should perhaps have been risk-weighted 200%, EU authorities assigned it 0%. As a consequence, Greece took on too much debt; and EU ignored its responsibility for it. Now each newborn Greek carries a huge mortgage. Is that how a Union should behave? I don’t think so.

PS. I first read about that monastery fees issue in a brochure that the then European Commissioner for Internal Market and Services, Michel Barnier, handed out in June 2011 during a conference in Washington at the Brookings Institute.

PS. On a different topic: The following, from a transcript, is a question I made during that conference, and Mr. Barnier's answer.

"MR. KEROVSKY: Yes, my name is Pere Kerovsky. Europe is there -- is what it is because of a lot of willingness to take risks, and in fact partisan songs often include “God make us daring,” and Pope John Paul II asked us to fish in deep waters, not settle for the (inaudible). But the last 20 years we have had bank regulations that are based on perceived risk and that have introduced a risk adverseness into the system, obviously a crisis that detonated in triple A-rated land and sovereign is not a crisis because of excessive risk taking but because of excessive adverseness of risk. You still are going the same route. Does this mean, really, that Europe has called it quits? Has capitulated and doesn’t want to really go forward because they’re giving up their willingness to take the risks needed? 

MR. BARNIER: I was amused by your first reference to fishing in deep water. I was a fisher’s minister (laughter), so I’m very interested in that. There’s less and less fish in deep waters, you know that. Watch out. 

Don’t count on me to say it’s business as usual. It’s not possible. Perhaps it is what certain bankers wish or -- but it’s no longer possible for citizens. We are not there to prevent risk-taking. We’re there to prevent excessive risk-taking. The payers are not the ones who are taking risk; it’s the taxpayers. When I see how compensations and bonuses have been calculated with riskier and riskier systems since the riskier the more paid you were, I think it’s one of the reasons of the crisis, and you know it. Who paid in the end? Taxpayers here and elsewhere. But we’re not there to prevent risk-taking. Everybody has to assume the risk responsibilities and pay the price, and we have to know who is doing what. 

I don’t see how a general system, which is not there yet, in food transparency would prevent risk-taking, but I think we should take risk, and I take risk in my planning, but those who take risks must be ready to accept that it is well known and then assume the responsibility.” 

Sir, I hope you understand by now how far Michel Barnier was from understanding the risk of excessive regulatory risk aversion, that which caused the 2007-08 crisis explosion, because of especially excessive exposures by banks, against especially little capital, to what was perceived or decreed as especially safe.

@PerKurowski

We need more solidarity among the free.

Sir Gideon Rachman rightly calls China´s manufacturing sector a headache to Mexico naming it as one of the reasons “Why Mexico is the missing Bric”, February 16. But to then jump to the conclusion of Mexico´s “economic underperformance” hides the fact that China´s competitiveness is not exclusively based on economic performance but on foreign exchange manipulations. For a still so much communistic country like China it is much easier to keep their currency artificially low than for a country like Mexico that, no matter their Carlos Slim, is an immensely freer country.

The free countries need to show more solidarity among them in order to defend themselves from the not so free.

A subprime dollar? Not the end of the world; but a change of collateral may be asked for

Sir Martin Feldstein’s “The dollar may be falling at just the right time” March 28, is a timely reminder that it is not necessarily that bad for the dollar doing upon other currencies what other currencies have done to the dollar; and that there is no need to look at it all as the end of the world… even though it might be the end of that money that was backed only by the trust in the government and that has had a run for almost 40 years now, some say amazingly.

We are all in this together

Sir Krishna Guha, in "The world's currency could become America's problem" November 10, describes several scenarios for the decline of the dollar but steers clear from the big question of whether the markets will keep their confidence in our current monetary and financial system if the dollar goes haywire.

After the dollar gave up the last appearances of gold backing in 1971 (Guha might have only been a child then) the world basically accepted a system based on the capacity of their governments, or politicians, to guarantee some sort of financial discipline and which so clearly amounted to an act of faith that it was made explicit by including the "In God we trust" on the currency.

In this respect if the markets come to completely lose their trust in the word of the US governments and their politicians this does not necessarily imply that they will have more trust in the word of other governments or politicians but it could in fact lead them to lose their confidence in all of them, at which point the dollar-yen-yuan-euro value becomes utterly irrelevant, leading to a global scramble for assets to barter, at any price, and perhaps having the prices of the shares on Wall Street quoted in ounces of gold.

And so what do we do now with this piece of knowledge? Unfortunately very little, since while the markets keep having trust in the system there is no major benefit being short of faith. Whether we know it or not we are in fact all in this together.

Do we really know how currencies behave when nude?

Sir, the concerted and concerned called for “We must act when currencies become misaligned” July 6, by four US senators, seems timely and reasonable even though it is hard to detect much real urgency as the unemployment levels in the US are low. In the dark ages, less than forty years ago, these currency imbalances would take care of themselves once the gold had moved over from the strong currency country to the weaker vault, and which made a reshuffle of the exchange rates required in order for the game to go on. Not any longer, now the currencies have no specific backing, they are all naked, which makes the issue much more confusing.

One of the attractions of asking someone else to revalue their currency is that somehow, because of some magic that would make the Hogwarts curricula proud, you seem to avoid having to communicate that you are devaluing yours, or that in essence you are declaring a big domestic salary decrease when measured in international purchase power terms.

The senators rightly say that there is no one single answer to America’s international economic and of course they are right, even though I fail to fully understand how “responsible healthcare” is an instrument of this particular toolbox. Sir, the world has never really been in this territory of major currency misalignments while in a nudist camp, so let us pray that everyone tinkers very carefully with them, while we learn, and at least while it all seems to be working not too bad.